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Overview

The Dubai Ports World controversy has shed light on the tensions between Congress and the executive branch over the appropriate balance between foreign investment and national security.

In the past few months, members of Congress have met with international companies, homeland security experts, and administration officials to better understand the process of reviewing security concerns associated with foreign investment in the United States. Congress is intent on changing the process and becoming more involved; the challenge ahead is to reform the process in order to minimize the security risks raised by foreign investment without chilling future investment.

In this Council Special Report, Alan P. Larson and David M. Marchick discuss the benefits of foreign direct investment in the United States and the security risks posed by foreign ownership of certain U.S. assets. They examine the inner workings of the committee that conducts security reviews—the Committee on Foreign Investment in the United States (CFIUS)—and recommend what policymakers should and should not consider in reforming it. The authors acknowledge that a lack of transparency in the process mixed with a new security environment, in which foreign ownership is seen as more sensitive, has cast doubt over the nature and effectiveness of the process, and they offer suggestions on how best to address congressional concerns. At the same time, they argue that CFIUS has been more effective than is commonly assumed and warn against alleged cures that promise to be far worse than any “disease” that currently exists.

Part of the Bernard and Irene Schwartz Series on American Competitiveness.

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Alan P. Larson is a senior adviser at Covington and Burling, where he provides clients with strategic advice and counseling on international trade, finance, and antitrust/comity issues. Mr. Larson has been economic counselor to five secretaries of state since joining the U.S. Department of State in 1973. Most recently, Mr. Larson served as undersecretary of state for economic, business, and agricultural affairs and was the first foreign service officer to serve in this position. Prior to that, Mr. Larson served as ambassador to OECD in Paris. In addition to his role at Covington, Mr. Larson is a strategic adviser and director at the World Economic Forum and a distinguished fellow at the Council on Competitiveness. Mr. Larson is a member of the board of directors of the U.S. chapter of Transparency International. He has three degrees from the University of Iowa: a BA in political science, an MA in economics, and a PhD in economics.

David M. Marchick is a partner at Covington and Burling. He advises foreign investors and domestic companies seeking national security approval for foreign investments under the Exon-Florio amendment to the Defense Production Act of 1950. Mr. Marchick advised IBM in the sale of its personal computer division to Lenovo; Global Crossing with respect to the proposed investment from Hutchison Wampoa and completed investment from Singapore Technologies Telemedia; and BT in its acquisition of Infonet. Mr. Marchick served as deputy assistant secretary of state for transportation affairs, where he was the senior U.S. negotiator for bilateral aviation agreements. Prior to this assignment, Mr. Marchick served as deputy assistant secretary for trade policy at the State Department and principal deputy assistant secretary of commerce for trade development. Mr. Marchick holds a BA in history from the University of California, San Diego, an MA in public policy from the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, and a JD from George Washington University.

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